CSC II – Test # 5 – Chapters 25, 26, 27

Things you Need to Know

Chapter 25 – Fee Based Accounts

 Advantages and disadvantages of Fee Based Accounts

o Advantages:
o Professional investment management
o A package of
o Services beyond investment management
o An investment policy statement
 Disadvantages:
 Higher potential cost
 Limited number of trades
 Potential for
 Extra fees

 The two broad categories of fee-based accounts are

o managed accounts and non-managed accounts
 Identify the various types of Fee Based Accounts

 Identify the various non-fee based accounts

o Full Service Brokerage Accounts
o Self Directed Brokerage Accounts
 CSC II – Test # 5 – Chapters 25, 26, 27

Things you Need to Know

Chapter 26 – Working with the Retail Client

 STEPS IN THE FINANCIAL PLANNING PROCESS

 Typically, financial planning is a six-step process, as follows:
1. Establish the client-advisor relationship.
2. Collect data and information.
3. Analyze data and information.
4. Recommend strategies to meet goals.
5. Implement recommendations.
6. Conduct a periodic review

 THE LIFE-CYCLE HYPOTHESIS

 Estate Planning

o CHOOSING AN EXECUTOR
o ESTATE FREEZE
o REVOKING A WILL
o PROBATE
o POWERS OF ATTORNEY AND LIVING WILLS

 ETHICS AND THE ADVISOR’S STANDARDS OF CONDUCT

o STANDARDS OF CONDUCT AND ETHICAL GUIDELINES
 CSC II – Test # 5 – Chapters 25, 26, 27

Things you Need to Know

Chapter 27 – Working with the Institutional Client

THE BUY SIDE The primary suppliers of capital in the marketplace are retail, institutional, and foreign
investors. Users of capital are typically businesses and governments. However, individuals also use
capital through consumer financing products, such as home mortgages, car loans, and credit cards.

 direct electronic access (DEA)

 Of particular concern are sophisticated strategies used by some DEA clients such as algorithmic
trading
 THE RESPONSIBILITIES OF A BUY-SIDE PORTFOLIO MANAGER AND TRADER
 THE ORGANIZATIONAL STRUCTURE OF A SELL-SIDE TRADING FIRM
 Back office, middle office, front office
 EQUITY SALES AND TRADING DEPARTMENT
o The primary activities of the equity sales and trading department include the following
functions:
 Equity trading services
 Program trading
 Structured finance
 Futures and options
 CSC II – Test # 5 – Chapters 25, 26, 27

Things you Need to Know

PRIME BROKERAGE Prime brokerage is a bundling of equity trading-related services used primarily by
hedge funds. The investment dealer’s prime brokerage unit provides the following services:

• Equity pre-trade compliance testing

• Security lending (for settlement of equity short sales)

• Margin and portfolio financing

• Security settlement

• Portfolio accounting

• Capital introductions (sourcing of funds for hedge fund clients)

 THE REVENUE SOURCES FOR SELL-SIDE TRADING FIRMS

REVENUE SOURCES OF A SELL-SIDE FIXED-INCOME TRADING DESK

 All revenue of the sell-side fixed-income desk derives from trading activity in the trader’s
inventory. The three areas of operation that work interdependently to bring in revenue are as
follows: • Trading • Sales • Origination
 SOFT-DOLLAR ARRANGEMENTS In a soft-dollar arrangement, an institutional client purchases
goods or services through commission dollars, rather than through an invoice. For example, an
institutional client may pay for investment research performed by a dealer by agreeing to
channel some trading business through the dealer in an amount equal to the amount charged

INSTITUTIONAL CLEARING AND SETTLEMENT for the service.

 STRAIGHT-THROUGH PROCESSING
 MARKET MAKERS

Fixed Income Styles:

 CSC II – Test # 5 – Chapters 25, 26, 27

Things you Need to Know

EQUITY STYLES
 CSC II – Test # 5 – Chapters 25, 26, 27

Things you Need to Know

 ALGORITHMIC TRADING
o High frequency trading (HFT), a subset of algorithmic trading, is characterized by
extremely fast trading in a very large number of orders for individual trades of very
small size.
 DARK POOLS
o • Lack of pre-trade transparency
o • Potential diminishing of information and liquidity, as the number of dark pools
continues to grow
o • Reduced fairness and market integrity, because of differences in access to markets
and information